IFS: 50p tax will raise 'little revenue' for UK economy

A leading centre for independent economic research has said the best evidence currently available suggests a 50p tax rate backed by Labourwill raise "little revenue" and make a "marginal contribution" to reducing the budget deficit.

While 40% of the 1,064 respondents disagree that the tax plan will make the rich leave Britain, 57% said they do not believe shadow chancellor Ed Balls will meet his pledge to balance the books in the next Parliament.

“By contrast to Ed Miliband’s recent interventions on energy and banking, which tried to reconcile competitive markets with Labour principles, Ed Balls takes us back to old Labour and the politics of envy.”

Labour will "have to do more" to control welfare spending to meet its pledge to balance the books, Ed Miliband has said.

The Labour leader warned that major changes will be needed to "cut the costs of failure in the system" as the party creates its plan to wipe out the deficit by 2020.

Ed Miliband said Labour will 'have to do more' to control welfare spending. Credit: Tim Goode/PA Wire

Writing in The Sun on Sunday, he also dismissed criticism of Labour's plans to reintroduce the 50p top rate of tax, which shadow chancellor Ed Balls announced yesterday, insisting the move would not stop the wealthiest "working hard".

Mr Miliband wrote: "If we are to tackle the deficit, we also have to do more to control social security spending. That means making tough choices this Government has ducked, such as scrapping the winter fuel allowance for the richest five per cent of pensioners."

Lib Dem Chief Secretary to the Treasury Danny Alexander said "Labour's hypocrisy on taxation is breathtaking" after Ed Balls set out the party's economic policy ahead of the 2015 General Election.

Mr Alexander said the shadow chancellor's speech shows the party "have learned nothing from the last few years and would undermine the foundations of Britain's economic recovery" and reintroducing the 50 pence tax rate "wouldn't help".

He said: "In Government they left a system full of loopholes for the wealthy to exploit.

"Thanks to our action in Government to raise capital gains tax, reduce pensions tax relief for the wealthiest, and tackle avoidance, Lib Dems in Government are raising more from those who have the most and making Britain more competitive."

The Institute of Directors (IoD) said Labour must "drop its practice of knee-jerk reversion to the old socialist nostrums" if the party wants to be taken seriously by business.

Director general Simon Walker said: "The 50p tax rate - actually 52p, because the last Labour government manipulated national insurance contributions - greatly damaged Britain's claim to being seen as a low-tax economy and actually drove down total tax receipts.